Governor's office says positive ports report is flawed

RICHMOND — Secretary of Transportation Sean Connaughton said Monday that changes to the state-run ports' management structure are critical, notwithstanding the findings of a recent state report that said the ports are on a good financial trajectory.

Friday's report by the Joint Legislative Audit and Review Commission was supposed to offer clarity amid the conflicting narratives about the ports including one that Connaughton relied on to say in October that the current structure was "unsustainable." The JLARC report said the earlier study ignored strategic advantages enjoyed by Virginia as well as a rebound in cargo volumes in 2012.

With a potential privatization of the ports looming, and business interests and reputations on the line, the financial health of the terminals has become a hot-button issue. After all, if the ports are doing so great and their management structure so ideal, why sell the operating rights to a private company?

Connaughton said the report, like the earlier ones he has cited, shows there's progress still to be made.

JLARC's report is "essentially saying the glass is half full (and) some of the other consultant studies are saying the glass is half empty," Connaughton said. "What we can all agree to is we're in the middle."

APM bid

The contentious privatization debate began last spring when APM Terminals submitted a bid worth more than $1 billion to run the ports for 48 years and replace the state's nonprofit operator, Virginia International Terminals.

The battle lines quickly formed. Executives at APM and Connaughton raised questions about the financial future of the ports under its current structure. Meanwhile, a number of local port-related businesses and shipping lines praised VIT and criticized various aspects of a possible deal.

VIT president and CEO Joe Dorto said the port was being run more efficiently than all but one other North American competitor, and he pointed to a string of monthly increases cargo volumes that outpaced rival ports in Savannah and New York.

On Monday, the House Appropriations Committee was briefed by JLARC staffers about the report that said the description of the ports as "unsustainable" doesn't reflect strategic advantages and its future upside.

Connaughton sought to strike a conciliatory tone, but he didn't back down from his description of the ports finances.

"You can call it unsustainable, you can call it whatever," Connaughton said, "but you need more cargo and you need to cut expenses … to remain an economic engine and continue to grow as an economic engine out into the future."

As evidence, he noted that both JLARC and earlier consultants agreed that there was waste on the VIT and Virginia Port Authority organizational charts.

The JLARC report said "administrative expenses could be reduced by eliminating duplicative functions," noting that VIT and VPA both employ finance and human resource staff that do similar jobs, and noting high salaries at the top of both organizations.

Lawmaker reaction

One lawmaker said the word "unsustainable" is legitimate since the state diverts more than $30 million a year toward capital expenses at the ports.

"They're being heavily subsidized by all of our taxpayers," said Del. Jimmie Massie, R-Henrico County. "We're paying for that to the tune of $37 million or $38 million a year."

JLARC deputy director Harold A. Greer responded that there's reason to think that the ports will turn enough of a profit in the future to render that subsidy unnecessary.

"It looks like they could reach a point of sustainability even setting that (subsidy) aside."